Herb Simon's Scissors and the Open Ended Models of Choice in Economics

|Peter Boettke|

Herbert Simon used the analogy of the blades of a scissor to explain human decision making ... one blade represents cognitive capabilities of the decision maker, the other blade represents the situational context within which the decision maker must choose. Recognition of this scissors gives rise to the idea of "ecological rationality" --- developed by Gerd Gigerenzer and also deployed consistently by Vernon Smith to discuss markets and institutions.

The open-ended model of choice that follows from a persistent and consistent subjectivism --- as developed by Menger, Mises, Hayek, Lachmann, Kirzner, Buchanan, Shackle, Rizzo, and Wagner --- fits most comfortably into this conceptualization of the interaction between cognitive capabilities and the situational context of decision making. As an operational research program in political economy, this aligns with the empirical strategy found at the intersection of historical and rational choice institutionalism.

This past week Gigerenzer gave an outstanding talk in our PPE workshop. As he stressed, you cannot turn decision making under uncertainty into complicated decision making under risk and do justice to the way that capable but fallible human beings choose.

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Let me plead again for not being so dependent on this multi-functional word "subjectivism" -- and let me again plead for carefully explicating the very different uses of this notion, ie let me plead again for carefully busting up the notion into its logically very different and in many ways completely incompatible components.

Peter writes,

"a persistent and consistent subjectivism."

Here's an example of two logically very different notions of "subjectivism":

(1) "Subjectivism" used to denote the OBJECTIVE logic of marginal valuation explicated using OBJECTIVE and GIVEN and STIPULATED rank orderings of given objects of choice, items which are taken to be viewed from a God's eye view point and which are take as universals of thought between all men.

(2) "Subjectivism" used to denote the unique know and judgment and perception of unique individuals in unique historical contexts of local place and historically unique relative price relations and social conditions and relative supply condition etc.

These two things are NOT alike at a very profound level.

We need two different words to identify these two VERY different things.

"Subjectivism" just does not help -- it hide differences of meaning and significance and misleads and confuses those using the language -- when folks are talking of two very different things, they mistakenly think they are talking of one thing.

Let's stop punting with this unhelpful overuse of the the multiply ambiguous pun-word "subjective".

The word "can" has multiple uses -- it's a natural pun-word. We need to alert ourselves to the puns economists are making without awareness using the pun word "subjective".

He seemed to genuinely understand and appreciate the value of markets...but then he only saw a moral argument against allowing 538 congresspeople to spend 1/4 of our nation's revenue. It's not that I don't agree with the moral argument...but it's just funny that he applied two different arguments to the same exact thing. The only difference is framing...I suppose.

"FWIW, people choosing which programs their tax dollars go to presents a coordination problem. Imagine if the budget last year for highway-building was $50B. Now imagine that everyone thinks they did a good job and highways are important, so they allocate more to highways. But since they all do it at once, the highway-building dept. now has $500B this year. What do they do with all that extra cash?"

Hey! He unintentionally gave your blog a shout out! I offered to buy him your new book...but he didn't take me up on it. You can lead a horse to water...but if it doesn't drink...maybe it knows something that you don't.

Hmmm...not sure if I have anything specifically relevant to this blog entry. The other day I learned about the Dunning–Kruger effect... http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect ...when somebody used it to argue against tax choice. That's funny because a market seems like a fairly decent way to determine whether somebody is accurately evaluating their skills/abilities/knowledge.

Strangely, behavioral economists criticize standard neoclassical theory for being too abstract and a-contextual (eg., framing problems and the like). But then they themselves fail to be contextual enough in their own work. They fail to see the importantance of the ecology in which decisions are made and in which "biases" occur. This all is especially clear in Gigerenzer's critical examination of many of Kahneman's results. It is amazing that Kahneman ignores Gigerenzer even though the latter's work has exploded many of Kahneman favorite results.